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When banks create money with a matching liability, they face the risk that the customer will try to take the money out in cash, or transfer it to an account at
by OscarCunningham 5y ago
When banks create money with a matching liability, they face the risk that the customer will try to take the money out in cash, or transfer it to an account at a different bank. In order to accommodate this they actually have to have the cash on hand, or borrow it from another bank with interest.
Likewise if you have 20,000€ on hand, or can borrow it from somewhere, you can use it to buy a car. You can then keep a mental note that you 'owe yourself' this money, but doing so makes no real difference.
- kgwgk 5y ago> they face the risk that the customer will try to take the money out in cash, or transfer it to an account at a different bank “They face the risk” seems a huge understatement. It would be quite unusual for someone to take a loan from a bank and leave the money sitting there at the bank.
- NovemberWhiskey 5y agoAlmost the entire business of a bank is to profit from maturity mismatch by borrowing short, lending long and taking the interest margin.